(This article was last published on May 12, 2016. It has been updated for accuracy and completeness.)
Providing a good delivery experience can determine whether a customer buys from you again or not.
According to ShipStation’s latest report, 83% of consumers are less likely to re-purchase from a retailer after a negative delivery or shipping experience.
Unfortunately, a lot of online sellers struggle with delivery, causing their business to suffer. But, building and managing your own logistics network is challenging, as it’s expensive and time-consuming.
To meet customer expectations and protect their bottom lines, merchants are partnering with 3PLs to outsource their fulfillment needs. In the years to come, 3PLs will be critical to competing online and growing your business.
Shopify Plus reported that demand for 3PLs is set to nearly double to $408 billion in the first half of this decade.
So, what is a 3PL exactly? What role can they play in your business? And, how to do pick the right one to partner with?
What is a 3PL?
A third-party logistics (3PL) provider is an outsourced partner that takes ownership of all or part of your order fulfillment processes. Once you get a new online order, you send it to a 3PL to pick, pack, and ship. In most cases, they also remain invisible to your customers and you can brand the packaging.
3PLs can help with warehouse management, pick and packing, shipping your goods, handling returns, inventory reporting, forecasting, and more. Common 3PL providers are:
However, there’s all sorts of different 3PLs and they can specialize by industry, location, or just a certain fulfillment process. Many retailers partner with 3PLs that align with their niche.
Why Would You Require a 3PL?
Globally, 64% of consumers want their orders shipped for free. And, 67% of U.S. consumers expect either same-, next-, or two-day delivery. Further, 72% of global consumers want brands to use sustainable packaging.
The point? Today’s consumers have high shipping demands. And, they’re inclined to shop around and spend their money with those who meet them.
The problem? Most online sellers can’t easily and readily build comprehensive logistic networks that meet those high demands. Implementing programs like same-day shipping require automated workflows and tech, efficient picking and packing services, and strategically located warehouses near customers. Further, only high-volume shippers receive cost-savings that make investing in your own infrastructure worthwhile.
When a seller is on their own, they usually rely on cobbling together processes, software, and people, which ends up being expensive and time-consuming (without producing the desired results, either). As you scale and expand to new channels, it can be tough to keep up with your order volume and maintain your deliver standards.
This leaves sellers in a tough spot. On one hand, you can offer expensive or slow shipping, but you’ll probably lose a lot of sales. You could also offer fast and free shipping, but risk draining your profits if you’re not diligent about tracking costs. Or, you could end up eroding customer trust if you over promise and don’t deliver.
nChannel customer, EasyCare, faced a similar experience when trying to implement same-day shipping for their customers.
Initially, they did all their own warehouse management. After 50 years in business though, they never felt efficient enough compared to the market and leaders like Amazon. They realized operating their own logistics wasn’t worth the financial costs or time to perfect.
By outsourcing to a 3PL like Warehouse-Pro, they got time back to focus on their core business operations like creating products, marketing, and supporting customers. They also consistently delivered as promised and saw a decrease in customer service tickets of customers asking where their order was.
You can read their full story of how they use a 3PL to ship more orders same-day and handle returns like experts.
How 3PL Services Are Changing the Retail Landscape
You (like many others) probably don’t specialize in logistics, and don’t want to either. But, you also need a strong supply chain to compete online and meet your customer’s expectations. That’s where 3PLs can help your business.
Access Advanced Capabilities
Most sellers turn to 3PLs for their basic capabilities of storing inventory, pick and packing orders, and handling returns. When partnering with the right 3PL though, they can also become a true extension of your team. You can work with them to handle your unique shipping requirements like:
- Industry or product-specific terminology on packing slips and shipping materials
- Shipping products with hazardous materials
- Shipping international
- Handling returns guarantees
- Offering sustainable packaging
- Maintaining your customer experience protocols
- Integrating into your other systems like eCommerce, ERP, or POS
As mentioned, it takes a high-volume of orders to see shipping discounts. 3PLs can leverage relationships and volume discounts that retailers could not otherwise achieve alone.With access to these cost savings and more, you can calculate an easy ROI of partnering with 3PL.
Here’s a few ways a 3PL can save your business money:
- Eliminate costly mistakes like shipping to the wrong address
- Remove costs for investing warehouses, technology, and transportation
- Reduce staff’s time policing and fulfilling orders at every step in the process
Further, think about how a 3PL can help increase your sales.
- Convert more visitors on the website with fast and free shipping
- Decrease negative reviews that hinder future sales
- Invest in other areas of your business like your product quality and marketing
- Have the confidence to expand new sales channels and handle fulfillment without issues
Customer Experience (and Gaining a Competitive Edge)
37% of consumers agree that shipping speed influences their purchasing decisions more than it did a year ago.
Being able to offer fast and free shipping can ensure a customer converts on your website. And, delivering as promised can also ensure they stick around to make another purchase.
A 3PL can eliminate shipping to wrong addresses, stockouts, delayed shipments, etc. You can decrease the number of customer service tickets asking when their order shipped or why the tracking info hasn’t updated. You can also turn frustrating processes like handling returns into seamless and easy transactions.
In a competitive online space, a 3PL can help your shipping processes stand out for the right reasons.
How to Partner with a 3PL
Beyond the likes of Amazon FBA and Rakuten, there are all sorts of 3PLs available to you. As you evaluate different options, be sure to consider:
- Specialization: Have they worked in your industry before? Do your products require any special handling or instructions?
- Location: Are warehouses in strategic locations close to your customers? This can save you money, and ensure orders are delivered on-time.
- Pricing: Is the pricing model transparent? How do your costs change as you grow or during busy seasons?
- Carrier Rates: What are their rates with carriers? Are they better than yours?
- Transportation: What type of delivery services do they offer? Can they ship internationally?
- Service Level Agreements: What happens if they don’t ship on time? Do you get a refund?
- Reporting: What type of forecasting or reporting do they offer?
- Integration: Can you integrate their systems into your ERP, eCommerce, or POS platform?
- Branding: Can you brand your packages?
As you work with a 3PL, remember that they will remain hidden to your customers. If a package isn’t delivered on time, the customer will blame you, not your 3PL partner. So, it’s important to be diligent when choosing who to partner with and trust with your customer experience.
More resources about shipping for eCommerce:
- Best Shipping Software for eCommerce
- United by Blue Founder/CEO Brian Linton Talks Fulfillment, Brand and Handling Growth
- Q&A: The Future of Cross-Border Commerce and International Shipping Experience
- How to Ship Your Products
- 3rd Party Fulfillment Services: Fulfillment by Amazon (FBA) Alternatives
- Are Returns Killing Your Online Store’s Profitability?